Government underestimating scale of digital economy

By Edd Gent

Published Monday, July 22, 2013

The digital economy is 40 per cent bigger than official statistics suggest according to a new report.

The study suggests the government has underestimated the scale and importance of digital technology firms to the UK's economy, claiming that there are almost 270,000 active companies in the UK compared to conventional measurements which put the figure at 167,000.

The National Institute for Economic and Social Research (NIESR) report also claims the revenue reported by digital companies is growing 25 per cent faster than that of traditional firms and these firms hire 15 per cent more people than non-digital employers.

The study draws on a wider range of data gathered by software firm Growth Intelligence rather than the official Standard Industrial Classification (SIC), which was first devised 65 years ago and fails to properly classify a range of digital firms, the report said.

Max Nathan, senior research fellow at NIESR, said: "Policymakers have identified the digital economy as one of the UK's key economic strengths. That means they need to be aware of the true numbers of digital businesses around the country.

"The old image of tech businesses as start-ups that make no money is out of date too: using big data we show a broad array of active businesses selling digital products and services."

The report was funded by Google and the firm's chief economist Hal Varian said in the foreword: "The UK is one of the world's strongest Internet economies yet the myth persists that it consists largely of tiny dotcom or biotech startups in a few high technology clusters that quickly bubble up and often go bust.

"The reality, as this report shows, is that the digital economy has spread into every sector, from architecture firms whose activities have become almost entirely digital to machine tool manufacturers who now use huge online data-processing facilities ... to monitor every aspect of their processes.

"The digital economy has spread into every part of the UK, not just in London and the south east but throughout the country, with particularly great intensity in places like Manchester, Middlesbrough and Aberdeen."

Business Secretary Vince Cable said: "This is an interesting alternative report. As our recently published Information Economy Strategy highlights, innovation, entrepreneurship and growth are spread throughout the UK.

"The information economy transforms every other business sector, driving productivity and creating new opportunities for growth."